A problem facing all high street banks is how to break down their divisional walls. The home loans unit developed its own IT system and database independent of the vehicle-finance or credit-card division, so banks never had a complete picture of their involvement with individual clients.
You notice this as soon as you approach your bank for car finance or a mortgage. In many cases, you're treated as a brand-new customer each time you request a new service. You have to fill out a new set of application forms as if you walked in to a new bank for the first time.
Banks have talked for years of bridging these information silos and developing a single view of the customer, but progress has been fitful and uneven.
It is like looking into a broken mirror - no matter how you rearrange the broken shards, you still get a fragmented image. What is needed is a brand-new mirror or, in IT terms, a new architecture.
Banks' investment in branch networks and IT infrastructure, complicated by a spate of banking mergers over the past decade, burdened them with duplicated and inefficient systems.
What this means in terms of lost business opportunities is incalculable. A customer who applied for a student loan 20 years ago may today be a CEO of a large corporation who qualifies as a private banking client. Yet the bank still talks to him as if he were a student. He buys a new car every second year, a new home every five years and travels abroad three times a year. Because the bank's various databases were walled off from each other, this crucial information fell through the slats. The customer, rather than waiting for the bank to get its act together, would probably have taken his banking business elsewhere.
Developing a single view of the customer is a priority for all banks and some, such as Absa and Standard Bank, are probably more advanced than most. Absa group executive for information management Dave Donkin says the bank is 80%-90% of the way there. "I doubt banks will ever get a 100% view of the customer, but 80%-90% is not bad, considering we follow the bancassurance model, which means integrating data from a multitude of databases."
The problem is more an operational than a technical issue: client information captured by the home-loan division may differ substantially from that of the credit-card unit. Developing a single view of the client is not just a case of integrating different databases; it's more a question of standardising the content and understanding relationships between banking clients.
MigrationWare MD Mark Cooper says: "Research has shown that failure to examine the content, structure and quality of data before integration is one of the reasons nearly eight out of 10 data integration projects cost two-thirds more than their original budgets, or collapse altogether."
Data is a bank's most valuable asset, and often its most neglected, he says. "In their present initiatives to establish data warehouses, data process and operational risk models, banks should not overlook the data requirements at the heart of Basel 2. It has been estimated that the efficiencies of Basel 2 could increase a bank's pretax earnings by as much as 3%-6%, And those improvements could lower capital requirements, thereby freeing a bank's capital for additional investments."
Risk management models could unravel if the underlying data has inconsistencies, duplications, errors and other anomalies that undermine its reliability.
Izazi Solutions technology head Mark Pardini says developing a single view of clients is critical for risk management. "To get a complete view of a client, you need to know that John Jones is married to Jane, and that she signed surety for a business loan. This could change both Jane and John's risk profiles, which is something the bank needs to know.
"Banks have been slow to develop a single view of the customer, but we've seen good progress over the past 12 months, partly because of the Financial Intelligence Centre Act (FICA), which forces them to develop a much deeper understanding of their clients."
Aggregating customer data from the bank's various databases on to a single page opens a universe of possibilities. It allows the bank to develop an accurate map of the client's banking behaviour to better target marketing campaigns. If the bank knows the client purchases a new car every two years, it can approach him with an offer and prevent the deal going to a competitor. It can also cross-sell products, such as insurance or investment, or migrate the customer to premium banking products.
When banks jumped on the customer relationship management (CRM) bandwagon in the 1990s, they expected it to unleash a torrent of cross-selling opportunities through a deeper understanding of their clients' banking behaviour. This didn't happen, says IBM SA associate partner Adrian Williams. "CRM broke down at the point of contact with the customer. They needed to get the right information about the customer to the sales people in the branch, but they couldn't jump between their divisional silos."
From a risk management point of view, having a single view of the customer arms the bank with a complete picture of its total risk exposure to individual clients, or categories of clients. That will be essential when the Basel 2 banking rules come into force in 2007. Basel 2 is intended to reduce the risk of banking failures by obliging banks to hold different quantums of capital for different risks (unlike the present system that requires banks to hold R8 of capital for every R100 advanced to a corporation, regardless of whether it is a laundromat or a multi-billion rand mining corporation).
Donkin says this single view of the client has improved returns on Absa's marketing campaigns. "Most direct mail campaigns would expect a success rate of 3%-5%. We've had successes of 20% and higher. We had a 23% success rate on one home loan campaign."
Banks and insurers are among the last of the enterprise-size organisations to adopt enterprise resource planning (ERP). Market leader SAP says ERP systems are on the road to becoming the core of back-office systems in the financial sector. This implies significant investment by banks for some time to come.
Two of the local big four banks (Standard and Absa) have already introduced SAP applications into parts of their businesses, and another is reportedly considering a similar move. The investment in back-office systems has a dual aim: to drive down administration costs and develop a single view of the customer that leads to better risk identification and risk management, as well as better service. And that counts whether you're a personal or a business customer.
